Global Market Report - 18 August

Australia

The ASX is set to open lower after Wall Street slumped and bearish US retail sales added to investor concerns about slowing growth.

The Australian SPI 200 futures contract was down 34 points or 0.12 per cent at 7,411 near 7.45 am Sydney time on Wednesday, suggesting a negative start to trading.

Wall Street's main indexes have taken a dive, weighed down by a drop in US retail sales that raised concerns about the economic recovery, as well as by disappointing results from Home Depot.

The Dow Jones Industrial Average fell 282.12 points, or 0.79 per cent, to 35,343.28, the S&P 500 lost 31.63 points, or 0.71 per cent, to 4,448.08 and the Nasdaq Composite dropped 137.58 points, or 0.93 per cent, to 14,656.18.

The Australian dollar was buying 72.56 US cents near 7.45am AEST, down from 72.84 US cents at Tuesday’s close.

Locally, shares on the ASX have seen their biggest drop since June as rolling coronavirus lockdowns and a slowing Chinese economy force investors to reset growth expectations.

The market closed lower for a second consecutive day, and almost one per cent down, as investors sold economically-sensitive stock such as financials and energy.

Pepperstone chief market strategist Chris Weston said investors in China and Australia were paring back growth expectations as virus outbreaks curb spending.

The Chinese economy appears to be slowing and in Australia, lengthy lockdowns in Melbourne and Sydney are making it tricky to forecast earnings.

Mr Weston said investors in both markets were selling stocks such as financials which benefit from an improving economy.

"The market has priced in high quality growth and is now having to pare back some of those expectations," he said.

"It's not a broad disdain for equities. It's just people moving to defensive stocks.

"There is an air of unease about the market."

The benchmark S&P/ASX200 index closed lower by 71.5 points, or 0.94 per cent, to 7511 on Tuesday.

The All Ordinaries closed down 76.3 points, or 0.97 per cent, to 7773.3.

The Reserve Bank showed concern for the effect extended lockdowns in Melbourne and NSW might have on the economy.

The bank is prepared to act if the economy deteriorates further, according to the minutes of the board's latest meeting.

The Aussie dollar dropped to as low as 72 US cents.

In company news, BHP confirmed the sale of its oil and gas business to Woodside.

After trading closed, BHP told the market it would have a 48 per cent stake in the new entity.

The mining giant posted a rise in full-year net profit of 42 per cent to $US11.3 billion.

Shareholders will gain a whopping final dividend of $US2 per share. This is higher than the same payout this time last year of 55 US cents per share.

BHP shares earlier closed down by 1.42 per cent to $51.33.

Rio Tinto fared worse and dropped 1.79 per cent to $116.37. Fortescue lost 1.33 per cent to $21.58.

The market also was let down by the Commonwealth Bank shares going ex-dividend. The bank lost 3.45 per cent to $99.00.

Meanwhile the Westpac board will consider following its peers and returning excess capital to shareholders.

The bank said details would be revealed at its full-year earnings.

Shares were down 1.32 per cent to $25.45.

Of the other chief rivals, ANZ and NAB lost about one per cent.

Energy giant Santos made a first-half profit after tax of $354 million following a loss this time last year.

Investors will receive a higher payout. The fully franked interim dividend due was 5.5 US cents per share.

Shares were down 0.81 per cent to $6.16.

Santos boss Kevin Gallagher said he expected to sign a merger deed for Oil Search in weeks.
Oil Search shares were down 1.04 per cent to 38 cents.

Home-makers stuck in lockdowns have helped Breville raise full-year profit by 42 per cent but investors wanted more.

Morgans senior analyst Alex Mees said Breville met its earnings guidance but some might have hoped for more.

Net profit after tax was $91 million.

Shares were down almost nine per cent to $30.36.

In the US, the S&P 500 and the Dow Jones will start trade tonight from record high levels. The Nasdaq dropped in the prior session.

Spot Gold was down 0.2% at $US1784.76 an ounce; Brent crude was down 0.4% at $US69.68 a barrel; Iron ore was down 1.7 per cent to $US160.75.

The yield on the Australian 10-year bond closed at 1.14 per cent.

Asia

At the close, China's Shanghai Composite index was down 2 per cent at 3,446.98.

The Hang Seng index, used to record and monitor daily changes of the largest companies of the Hong Kong stock market, closed down 1.66 per cent at 25,745.87.

Japan's Nikkei 225 was down 0.36 per cent at 27,424.47.

Europe

The pan-European STOXX 600 index, which tracks the return of the largest listed companies across 17 European countries, was up at 473.78.

The German DAX was down at 15,921.95.

North America

Wall Street's main indexes have taken a dive, weighed down by a drop in US retail sales that raised concerns about the economic recovery, as well as by disappointing results from Home Depot.

The Dow Jones Industrial Average fell 282.12 points, or 0.79 per cent, to 35,343.28, the S&P 500 lost 31.63 points, or 0.71 per cent, to 4,448.08 and the Nasdaq Composite dropped 137.58 points, or 0.93 per cent, to 14,656.18.

Almost all of the S&P 500's sectors were lower at close on Tuesday, with consumer discretionary the weakest performer.

Home Depot shares fell sharply after the company's US same-store sales fell short of estimates for the first time in nearly two years as pandemic-fueled do-it-yourself projects tapered off. Shares of rival Lowe's Companies also dropped.

A report showed that US retail sales fell more than expected in July, as supply shortages depressed motor vehicle purchases and the boost to spending from the economy's reopening and stimulus checks faded, suggesting a slowdown in growth early in the third quarter.

"The retail sales drop I think clarified for investors that COVID may well be a big problem going into the fall," said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

All three major US indexes ended well lower, after the S&P 500 and the Dow Industrial had previously closed at record highs for five straight sessions.

"The (market) backdrop remains really solid," said Katie Nixon, chief investment officer at Northern Trust Wealth Management. "At this point, when you have some of these negative macro indicators coming in and you have markets that are selling at all-time highs with pretty expensive valuations by any measure, there is just going to be more vulnerability to that kind of bad news."

With the market in a period that has seasonally been weak historically, investors have said stocks may be due for a significant drop, with the S&P 500 yet to experience a 5 per cent pullback this year. On Monday, the S&P 500 closed 100 per cent above its March 2020 low.

Still, market watchers have said that huge amounts of cash held by investors and companies could protect stocks from severe declines, as buyers are quick to look for opportunities to scoop up cheaper shares. In an encouraging sign about the economic rebound, a Federal Reserve report on Tuesday showed production at US factories surged in July.

Investors are looking for signs about when the Federal Reserve will rein in its easy money policies, with minutes from the central bank's latest meeting due on Wednesday, and are watching the resurgence in COVID-19 cases and its impact on the economy.